The First International Conference On Law, Business and Governance 2013
22, 23, 24 October 2013 Bandar Lampung University (UBL)
Lampung, Indonesia
PROCEEDINGS
Organized by:
Faculty of Law, Faculty of Economics and Faculty of Social Science Bandar Lampung University (UBL)
Jl. Zainal Abidin Pagar Alam No.89 Labuhan Ratu, Bandar Lampung, Indonesia Phone: +62 721 36 666 25, Fax: +62 721 701 467
website :www.ubl.ac.id
PREFACE
The Activities of the International Conference are in line and very appropriate with the vision and mission of Bandar Lampung University (UBL) to promote training and education as well as research in these areas.
On behalf of the First International Conference on Law, Business and Governance (Icon- LBG 2013) organizing committee, we are very pleased with the very good response especially from the keynote speaker and from the participans. It is noteworthy to point out that about 67 technical papers were received for this conference.
The participants of the conference come from many well known universities, among others : International Islamic University Malaysia, Utrech University, Maastricht University, Unika ATMA JAYA, Universitas Sebelas Maret, Universitas Negeri Surabaya, Universitas Jambi (UNJA), Diponegoro University, Semarang, Universitas 17 Agustus 1945 Jakarta, Universitas Bandar Lampung, Universitas Andalas Padang, University of Dian Nuswantoro, Semarang, Universitas Terbuka, Universitas Airlangga, Bangka Belitung University, President University, Tujuh Belas Agustus University Jakarta, International Business Management Ciputra University, Surabaya, University of Indonesia, Business School Pelita Harapan University, STIE EKUITAS, Bandung, STAN Indonesia Mandiri School of Economics Bandung, Lampung University.
I would like to express my deepest gratitude to the International Advisory Board members, sponsor and also to all keynote speakers and all participants. I am also gratefull to all organizing committee and all of the reviewers who contribute to the high standard of the conference. Also I would like to express my deepest gratitude to the Rector of Bandar Lampung University (UBL) who give us endless support to these activities, so that the conference can be administrated on time
Bandar Lampung, 22 October 2013
Mustofa Usman, Ph.D Icon-LBG Chairman
iii
PROCEEDINGS Icon-LBG 2013
The First International Conference on Law, Business and Governance
22, 23, 24 October 2013
INTERNATIONAL ADVISORY BOARD M. Yusuf S. Barusman, Indonesia
Andala R.P. Barusman, Indonesia Mustofa Usman, Indonesia Hayyan Ul Haq, Netherland Renee Speijcken, Netherland
Zulfi Diane Zaini, Indonesia Agus Wahyudi, Indonesia
Harpain, Indonesia Khomsahrial Romli, Indonesia
Ida Farida, Indonesia Warsono, Indonesia Andreas Budihardjo, Indonesia
Pawito, Indonesia
I Gusti Ayu Ketut Rahmi, Indonesia Lintje Anna Marpaung Indonesia
Zainab, Indonesia
Nik Ahmad Kamal Nik Mahmood, Malaysia Maliah Sulaiman, Malaysia
Mohanraj, India Wahyu Sasongko, Indonesia
Ari Darmastuti, Indonesia
PROCEEDINGS Icon-LBG 2013
The First International Conference on Law, Business and Governance
22, 23, 24 October 2013 STEERING COMMITTEE
Executive Advisors Dr. Ir. M Yusuf S. Barusman, MBA Prof. Dr. Khomsahrial Romli, M.Si.
Dr. Lintje Anna Marpaun, SH., MH.
Drs. Thontowie, MS Chairman Drs. Harpain, MAT, MM
Co-Chairman Helta Anggia, S.Pd., M.A
Secretary Tissa Zadya, SE., MM.
Technical Committee of Law Division
Dr. I Gusti Ayu KRH, SH., MH Dr. Erina Pane, SH., MH Dr. Zulfi Diane Zaini, SH.,MH Dr. Zainab Ompu Jainah, SH., MH
Erlina B, SH.,M.Hum Business Division
Prof. Dr. Sudarsono Dr. Lindrianasari, S.E., M.Si., Akt Dr. Anggrita Denziana, SE., Akt.,MM Dr. Alex Tribuana Sutanto, ST., MM.
Dra. Rosmiati Tarmizi, MM, Ak.
Dr. Drs. Fauzi Mihdar, MM Andala Rama Putra, SE, M.A, Ec.
Afrizal Nilwan, SE,, M.Ec., Akt.
Tina Miniawati, SE., MBA.
v Governance Division
Dr. Drs. Supriyanto, M.Si.
Dr. Ahmad Suharyo, M.Si.
Dr. Hasan Basri, M.Si.
Drs. Hassan Basrie, M.Psi.
Dr. Dra. Ida Farida, M.Si.
Dr. Wawan Hernawan, M.Pd.
Drs. Suwandi, MM.
Drs. Yadi Lustiadi, M.Si.
Dra. Agustuti Handayani, MM Treasure
Samsul Bahri, SE Dian Agustina, SE
PROCEEDINGS Icon-LBG 2013
The First International Conference on Law, Business and Governance
22, 23, 24 October 2013
ORGANIZING COMMITTEE Chair Person
Tissa Zadya, S.E, M.M Vice Chair Person
Dra. Yulfriwini, M.T Administration
Proceedings and Certificate Distribution Dr. Zainab Ompu Jainah, SH., MH.
R Nadia RP Dalimunthe, S.S., M.Hum.
Drs. Suwandi, MM Dra. Agustuti Handayani, MM
Berry Salatar, S.Pd.
Kartini Adam, SE Atin Inayatin Agung Saputra
Jacinda Purwanto Special Events Dr. Zulfi Diane Zaini, SH.,MH.
Siti Rahmawati, SE Khairudin, SE., M.S.Ak Olivia Tjioer, SE., MM.
Achmad Haris Alvin Aritanando Mochammad Fikri H.
Ayu Safitri Pandu Kurniawan
Cecilia Ariani J.B
vii Sponsorship
Dr. Alex Tribuana Sutanto, ST., MM.
Agus Gunawan Tari Ines Safitri Winda Natasya Dicky Wahyudi Poppy Irawati
Toni Arifin Hansen Adi Pangestu
Receptionist and Registration Dra. Agustuti Handayani, M.M
Tami Ruli, S.H., M.Hum Haninun, S.E., M.S.Ak
Nilawati Refli Setiawan
Moh. Fileri H Alvin Aritanando
Tia Agustina Rina
Documentation Noning Verawati, S.Sos
Hesti, S.H Rifandi Ritonga, SH
Febtry Mariska M Sabila Rasyad Putu Riski Mandala
Rico Febrianto Yahya Saiful
Luqman Reno Art Simorang
Transportation and Accommodation Irawati, SE
Pandi Edi
Consumption Susilowati, S.T., M.T Risti Dwi Ramasari, S.H., M.H
Dra. Azima Dimyati,MM Olivia Tjioener, S.E., M.M
Mei Endang Lestari Nadia May Linda
Widiya Nanda
Publication and Public Relation Ir. Indriati Agustina Gultom, MM.
Dina Ika Wahyuningsih, S.Kom Noning Verawati, S.Sos., M.A
Siti Masitoh Wahyu Pamungkas
Habib Mustofa Andre Putra Sandi Prayoga Roni Semendawai
Syifaudin Dharma Saputra
Yohanes Alex
Facility and Decoration Siti Rahma Wati,SE
Dina Ika Wahyuningsih, S.Kom Zainal Abidin, SE
Ahyar Saleh, SE Eko Suhardiyanto
Wagino Sugimin
ix
Table Of Content
Preface... ii
International Advisory Board ... iii
Steering Committee ... iv
Organizing Committee... vi
Table of Content ... ix Keynote Speakers :
1. Leadership Style, Climate, Commitment and Corporate Performance–
Andreas Budihardjo ...I-1 2. The Great Paradox of Good Governance in Indonesia - Andrik Purwasito ...I-8 3. Local Autonomy and Inter-Sector Performance-Based-Governance in Lampung
Province–Ari Darmastuti ...I-15 4. Urgency of Regulatory Priorities Watershed in Order To Conduct an
Integrated Watershed Administrative Law In Indonesia–
I Gusti Ayu Ketut Rachmi Handayani...I-22 5. The Strategic Development Model of Organizational Dynamic Capabilities at
Private Higher Education Institutions Using Soft System Methodology–
M Yusuf S Barusman...I-29 6. Governance, Business and The Environment - Maliah Sulaiman ...I-39 7. Good Governance and The Rule Of Law - Nik Ahmad Kamal Nik Mahmod ...I-45 8. The Legal Protection of Geographical Indications in Indonesia Towards The
Asean Economic Community - Wahyu Sasongko...I-56 9. Bank Indonesia Law Relations With The Financial Services Authority (FSA) in
Indonesian Banking Supervision - Zulfi Diane Zaini ...I-63 10. Application of Factor Analysis to Public Sector Integrity in Indonesia -
Warsono, Armen Yasir, Dian Kurniasari, Widiarti, Ridwan Saifuddin ...I-69 11. Strengthening Creative Economic Resources Through Designing Appropriate
Regulatory Model in Managing and Optimising Cultural Property- Hayyan ul
Haq...I-76 Invited Speaker
12. The Direction Of Future Management Accounting Research In The Asia Pacific Region
- Grahita Chandrarin ...I-77 Paper Presenter :
Law :
1. Indonesian Marriage Legal System Construction In Order to Protect Children
From Marriage Law That is Not Recorded - Amnawaty... II-1 2. Urgently of Harmonization of National Legislation on Juvenile Criminal Justice
Towards International Standards: A Review of Rules of Deprivation of Liberty of
Child Offender - Antonius Ps Wibowo... II-14
3. The Urgency of Total Economic Value Aspect in Food Security Regulation In
Order to Engage Asia’s Trade Area(Indonesia Case Study) - Anugrah Adiastuti ... II-25 4. Strike as The Last Resort In Dispute Settlement Between Workers and
Employers - Arinto Nugroho ... II-30 5. Politics of Land Law For Indonesian Farmers (Towards the Bill of Land in
Indonesia) - Elita Rahmi ... II-35 6. State Role In Building People's Economy Amid Economic Globalization -
Elly Nurlaili ... II-40 7. Legal Protection of Traditional Crafts Tapis Lampung Based Local Wisdom in
The Era of Globalization- Erlina B ... II-45 8. Perda Progressive : an Alternative To Fulfillment of Poor People Rights of
Health in Local Autonomy - H.S. Tisnanta, Agus Triono ... II-52 9. The Comparison Between Indonesian Constitutional Court and Russian
Constitutional Court - Lintje Anna Marpaung... II-58 10. The Politics of Islamic Criminal Law in Indonesia (A Critical Analysis) -
Mohamad Rapik... II-67 11. Learning Environmental Rights, Finding Green Future: The Road to Ecojustice -
Muhammad Akib, Fathoni ... II-73 12. The CSR of Tobacco Industries: The Concept And Its Implementation–
Nanik Trihastuti ... II-80 13. The Comparison Of The Indonesian Ppatk Role With Other Countries Financial
Intelligence Unit (FIU) - Nikmah Rosidah ... II-86 14. Benefits Of Ratification Of The Madrid Protocol (Protocol Relating To The
Madrid Agreement Concerning The International Registration Of Marks) For The
Protection Of Intellectual Property Rights In Indonesia - Risti Dwi Ramasari ... II-92 15. Equitable Law of Democracy Political Policy Against The Election of Incumbent
- S. Endang Prasetyawati ... II-99 16. Narcotics Crime as A Phenomenon of Transnational Organized Crime - Zainab
Ompu Jainah ... II-110 17. Safety Net of The Financial System in The Perspective of Indonesian Banking
Law - Zulfi Diane Zaini ... II-115 18. National Land Law Reform in Facing Globalization - Darwin Ginting ... II-122 19. Land Dispute Settlements Insocial Philosophy Perspectives (A Case Study in
PTPN VII of Bergen Unit Business in South Lampung Regency) -
Herlina Ratna S.N. ... II-130 20. Analysis of Regional Expansion as Implications of Regional Autonomy
Implementation - Indah Satria ... II-137 21. Normative Judicial Analysis of Dissolution of Political Parties Towards
Democratic System in Indonesia - Rifandy Ritonga ... II-141 22. Limitations Of Legal Ability In Dispute Resolution Of Consumer Protection -
Tami Rusli... II-147 Business
1. Accountability And Financial Performance of Local Government in Indonesia–
Aminah, Lindrianasari ... III-1
xi Performance (Studies on Patronage Outlets PT. Indosat Semarang) - Ana
Kadarningsih ... III-7 3. Bankruptcy Analysis of Banking Companies in Indonesia Period 2001-2012
(Using the Altman Z-Score Model)- Andi Sanjaya, Lindrianasari, Aminah ... III-20 4. The Influence of Audit Committee Quality and Internal Auditor Objectivity
Toward The Prevention of Fraudulent Financial Reporting(A Survey in BUMN
of Indonesia) - Angrita Denziana ... III-26 5. Performance Measurement of Management Study-Program Based on Balanced
Scorecard from Students’ Perception –Ardansyah, Ayu Ichda Mardatila ... III-32 6. E-Business : At A Glance Indonesia Online Shop Agent - Arnes Yuli Vandika,
Samsul Arifin, Eka Imama Novita Sari, Debi Herlina Meilani ... III-37 7. Brand Awareness Strategy: Role of Blackberry Messenger (Case in Sumber Tiket
Murah Travel: PIN 2144C41F) - Dian Pane, Baroroh Lestari... III-40 8. Analysis of Corporate Social Responsibility Implementation And Social Audit at
PT Semen Padang - Elvira Luthan, Sri Dewi Edmawati ... III-50 9. Tourism Investment, Supply and Demand in Indonesia: Impact and Factor
Analysis -Faurani Santi, Rina Oktaviani, Dedi Budiman Hakim, Reni Kustiari... III-61 10. The Effect of Job Satisfaction and Organizational Justice on Organizational
Citizenship Behavior with Organization Commitment as The Moderator - Fauzi
Mihdar... III-75 11.The Economic of Umar Bin Khattāb Policyin Modern Economic Policy -
Hendri Hermawan Adinugraha ... III-83 12. The Influence of Corporate Governance Implementation toward Bank
Performance (Empirical Study on Banks Listed in Indonesia Stock Exchange) -
Heriyanni Mashitoh, Irma... III-90 13. The Factors That Influence The Firm Performance In The Furniture Industry
Jepara - Mahmud,Guruh Taufan H, Ida Farida... III-102 14. The Implication of Opportunistic Behavior Towards a Financial Report
Conservatism : A Study of Banking Company Go-Public at BEI - Novi
Darmayanti, Nur Suci Mei ... III-110 15. Innovation Strategy With Environment Variable Antesenden Internal, External
And Environmental Partnership Strategy For Their Impact On The Sustainable Competitive Advantage (Survey on Small Business in Pangkalpinang city) -
Reniati and Dian Prihardini Wibawa ... III-118 16. The Infuence of Cash Flow Information Toward Stock Return - Reza Kurniawan ... III-126 17. The Influence of Internal Control toward Production Cost Control Efectivity -
Sarjito Surya... III-132 18. The Influence of Management Information System to Management Control
System - Sihar Tambun, Vienda A. Kuntjoro... III-138 19. Identifying Indonesia-Uruguay Bilateral Trade Opportunities:A Revealed
Comparative Advantage Approach - Sulthon Sjahril Sabaruddin, Riris Rotua
Sitorus ... III-145 20.Redesign the Competence Business Strategy of SME’s in Dealing with ASEAN
Economic Community (AEC) Trade Liberalization 2015Case Studies: SME’s
Creative Industry Sector in Bandung - Teddy Fauzi ... III-153
21. Service Innovation: In Highly Competitive of Hotel Industry - Widjaja Hartono ... III-157 22. The Impact of Liquidity, Profitability And Activity Ratio To The Probability Of
Default For Banking Companies Listed in Indonesia Stock Exchanges For The
Period 2006 To 2012 - William Tjong, Herlina Lusmeida ... III-164 23. Using Altman Z-Score Model and Current Status Of Financial Ratio to Asses Of
Consumer Goods Company Listed in Indonesia Stock Exchange (IDX) - Yoppy
Palupi Purbaningsih, ... III-169 24. Analysis of Factors Affecting Foreign Direct Investment Mineral Mining Sector
in Indonesia Period 2009-2012 - Zeflin Angga1, Purwanto ... III-176 25. Implement of M-Government to Improve Public Services - Ahmad Cucus, Yuthsi
Aprilinda ... III-181 26. The Development of Productivity Performance Models: Based on Self-efficacy,
Trust, Systems Quality, and Information Quality. Study on Information Systems
of PT Pindo Deli Paper Products - Indah Kartika Sandhi... III-187 Governance
1. Controlling for Agricultural Land Conversion District in West Java Province
Tasikmalaya - Ade Iskandar ...IV-1 2. Local Handicraft Development Policy Implementation - Ani Heryani ...IV-5 3. Designing IT Governance Approach Standard ISO 38500 for Indonesia Higher
Education - Arnes Yuli Vandika, Samsul Arifin, Eka Imama Novita Sari, Debi
Herlina Meilani ...IV-9 4. Potential Thematic Campaign for Lampung Tourism - Hasan Basri ...IV-12 5. Globalization and Its Effect on Democracy - Ida Farida ...IV-17 6. Bureaucracy Communication and Government Organizational Culture -
Khomsahrial Romli ...IV-23 7. Creative Economic Development Mode Through Business Learning Group For
The Purpose of Ending The Poverty - Soewito, Suwandi ...IV-29 8. Child Protection Strategies at Agrarian Conflict Area (A Case Study at Moro-
Moro Village, Register 45, Mesuji Regency) - Wijatnika ...IV-36
III-26
FRAUDULENT FINANCIAL REPORTING (A Survey in BUMN of Indonesia)
Angrita Denziana
Faculty of Economics, University of Bandar Lampung, Lampung, Indonesia Corresponding email: [email protected]
Abstract
It requires information quality, and free from distortion. Some cases both nationally and internationally indicate the occurrence of irregularities in financial reporting due to the weakness ofthe company's internal control system, and the audit committeehas not functioned optimally, resulting in low quality off inancial reporting. The research study uses explanatory method. The data were collected through survey technique by distributing questionnaires to SOEs in Indonesia. The respondents involve audit committee and internal auditors. Before the data were used to test the hypothesis, it should tested the validity and reliability of data. The data have been analyzed by using partial lisquare descriptive analysis modeling to test the hypotheses.
The results concluded that, 1) the quality of the audit committee have affect on the prevention of fraudulent financial reporting, 2) objectivity of internal auditor have affect on the prevention of fraudulent financial reporting.
Keywords: Audit committee quality, internal auditor objectivity, and fraudulent financial reporting
1. INTRODUCTION
Fraudulent Financial Reporting is an intentional deceiving act set by superiors in order to show better report than the actual report (Albrecth 2003: 97)
The cause of the fraud and financial scandal which recently have been revealed is regarding with the weak corporate governance (Cohen et al. 2004). This fraudulent financial reporting misguides the investors. This report which usually functions as a guidence sometimes misguides the investors in their decision (Verdi, 2006). Fraudulent financial report can give bias and misguiding information (Belkaoui, 2004:53-54)
Thes fraudulent cases has recently happened because the internal audit function is still not effective yet (Anwar nasution, 2009) It is also supported by the research by Bapepam which reveals that 1) the financial report audit for external and internal is still not effective. 2) the function of internal audit or the risk assessment function is not effective while in fact this function is really needed by companies in order that the internal audit can run smoothly. The modus of financial crime is not only about fraud but also about the weak system of audit(Josh Luhukay, 2011).
Research by COSO (2007) explains that there is income claim by managements by using fraudulent technique such as: fraudulent financial reporting and asset misappropriation. Bahr et al (2010) also proves that the involvement of chief executive officer ad chief financial officer which triggers the fraud from 1997-2007 increases for about 6% or from 294 cases up to 347 cases and the most common fraud is about income claim.
Other research by ACFE (2010) reveals that American companies suffer from 6 % lost which is caused by fraud, this lost has not changed yet since 1996, the most common fraud has happened is asset misappropriation (85%), corruption (13%), and fraudulent financial report is only (5%), but it gives the most significant lost for about $ 4.25 million.
control.
The general director of PT. Waskita Karya, TBK (M. Choliq, 2011) found an excess of report of 4 billion Rupiah which is made by previous director in doing fraudulent financial report within 2004-2008 by claiming the next prospective income as a certain period income. Moreover, an investigation by BPK towards bank century also reveals some important things such as: 1) $ 18 billion corruption of valas finance and 247 negotiable certificate of deposits with respective of 2 million rupiah; 2) there are some frauds done by bank officers, wealth holders and other related people which suffers Bank Century. (Hadi Purnomo, 2011).
The reveals of some cases in India also shows the fraudulent financial reporting, like Satyam Computer Services, Ltd which reported the finance of about Rs. 50,4 billion or $1.04 which is actually a fictive report. While the Lehman Brothers in USA 2008 was caused by materially misleading accounting gimmick or window dressing, that is an effort which is done in order to camouflage the real ugly truth.
KPMG in 2010 did a survey about fraud in any industrial segment in India with the managing director/
Chairman, CFO, Head of Internal Audit and Compliance, Fraud Risk Manager and Senior management as respondent, and it was known that some factors initiating the fraud are: weak internal control (63%) the decrease of etiquite value (48%) and the fault in any action (40%). The reason of doing fraud is for management override control (66%), reaching market expectation (63%) and for remuneration based on work ethic (61%). fraud detection is mostly done by internal auditor (47%). Detected fraud from mobile cellular is (38%) and from wistle blower is (26%).
Based on the data of fraud action by Certified Fraud Examiners (CFEs), The fraud done by top management and superiors contributes the biggest lost. The fraud prevention and detection is done by accounting standard board (FASB, 2008) and American Institute of Certified Public Accountants (AICPA, 2005) which is done by issuing standards and rules which may prevent the fraud action.
The director of micro Bank Mandiri, Budi Gunadi Sadikin stated that the fraud is not only happening through physical action but also through electronic which can be shown from fraud cases through credit card. This statement is supported by the data of Bank Indonesia as per April 2010 that the total fraud cases notified is 2.829 cases and the lost is about Rp. 16,72 billion, the volume of credit card transaction reaches 62,9 million which is equal to Rp. 49,85 trilliun and the number of credit cards is 12,61 million cards. The money laundry case of Citibank costumer reaches Rp 17 billion also indicates the weak system of internal control. That is also the same to the money laundry effort in BNI which ups to 4 billion which has been reported recently.
The gouvernor deputy of bank Indonesia in Banking Efficiency Award discussion 2011 stated that the happening of many fraud cases is caused by the control toward top managements is not sustainable, the unoptimal internal control, the weakness in the policy and procedural implementation, and Human resource department does not really implement know your employee (halim Alamsyah, 2011)
The preventive action of fraud has been done by the regulators like bank Indonesia and Bapepam LK through regulation of Bank Indonesia No: 5/8/PBI/2003 which explains that Fraud Risk magement must have the active control of hous of comisariat and direction, sufficient policy, procedure and limit sufficient identification, measurement, controlling and risk control, also management information sytem and thoroughly internal control by introducing risk prevention with “No fraud Tolerance” through optimalization of Principle based-regulation through optimalization of obedient direction function, internal audit, and risk management which operates independently (KNKG, 2006).
In Bapepam notification letter No. SE-03/PM/2000 is stated that audit committee helps comisariat in:
10 improve the quality of report, 2) setting up the environment which can prevent the fraud action in company management, 3) increasing the activity of internal audit, and 4) identifying things which need comisariat concern.
The TELKOMSEL Tbk case in 2002 indicates the weakness of audit committee, especially in terms of auditor recruitment which did not confirm the qualification. This weakness of audit committee and the weakness of internal control also happened to PT. Kimia Farma (Tbk) which related to total benefit mark- up of PT. Kimia Farma Tbk in 2001 for about Rp. 32,668 billion ( which was actually Rp. 99,594 billion but written as Rp. 132 billion). Some colleagues also stated that the cause of fraud action is also mainly about the decreasing of internal committee audit quality like in case of Enro, and Tyco (O’ Keefe, 2003).
This thing can help in rethinking that the improvement of audit committee quality must be done for preventing fraudulent reporting. (Beasley 1996, and Chtourou et al, 2001).
III-28 use their position in doing internal control carefully, payin attention to any possibility of fraud, errors, manipulation, in-efficiency, non-effectiveness an conflict of interest and condition and activities which might cause irregularity (IIA, 2003).
Internal auditor also helps management in designing and sustaining the intern control sufficiency, it is also responsible to control the sufficiency and effectiveness of respective control system (Hermanson et al. 2008). According to Rezaee and Riley (2010), internal Auditor also has important roles in preventing and detecting the existence of fraudulent financial reporting, also in evaluating the implementation of corporate governance.
Based on the background above, the researcher is interested in finding the clearity and empirical evidence about “the influence of audit committee quality and internal auditor objectivity toward the prevention of Fraudulent Financial reporting” in BUMN Indonesia. The objective of the research is to analyze 1) the influence of audit committee quality toward the prevention of fraudulent financial reporting; and 2) the influence of internal auditor objectivity toward the prevention of fraudulent financial reporting.
2. METHOD
The object of this research is audit committee quality, objectivity of internal auditor, and the prevention of fraudulent financial reporting in BUMN Indonesia.
The method of the research in this research is (explanatory research), which explains the cause-effect relationship amon variables (Cooper and Schindler, 2006:154). Explanatory research is concerning on the theory or hypothesis which will be examined as a cause of a phenomenon.
There are two variables in this research:
1. Independent variable (eksogen) which consists of audit committee quality variable (X1) and internal auditor objectivity variable (X2).
2. Dependent variable (endogen) which consists of the prevention of fraudulent financial reporting (Y).
The population of this research is 141 BUMN in Indonesia. This research uses the probability sampling technique and proportioned stratified random sampling because the population has heterogenous members and in proportional level (Sugiyono, 2009:83). The minimum number of sample in this research is 58 BUMN in Indonesia.
The variable of research is measured by using likert scale which is elaborated as te returning point in making research instrument items which are in form of statement item. The range which is used in examining the answers of the questions is from 1-5.
The analysis device which is going to be used in this research is Structural Equation Modelling (SEM) which is based on component or variance which also known as partial least square (PLS), due to the limitation which is caused by number of sample, the multivariate normality of data, indicators must be reflective, the model must be based on theory and indeterminacy (Imam Ghozali, 2008).
The measurement model in this research will be convergent validity anddiscriminan validity. Inner model will be evaluated by seeing three quantities by using R-square for dependent construct, Stone-Geisser Q- square test, t value and significancy from structural parameter coefficient (Imam Ghozali, 2008:26).
The hypothesis test in this research will be as follows:
1. The first hypothesis, to test the infuence of audit committee quality (KAA) toward the prevention of fraudulent financial reporting (PFFR).
2. The second hypothesis, to test the influence of internal auditor objectivity (OAI) toward the fraudulent financial reporting (PFFR).
3. RESULT ANDDISCUSSION
3.1. Test of the first hypothesis: the influence of audit committee quality toward the prevention of fraudulent financial reporting
Through coefficient value the eksogen variable influence can be measured (audit committee quality) toward the prevention of fraudulent financial reporting and the result is:
Variable Coefficient Direct Influence
Indirect Influence
Total
KKA OAI
KKA 0,468 21,8% 12,0% 33,8%
Total 33,8%
Based on the above result it can be seen that t value of variable KKA (2,586) is higher than t critical (1,96), with the degree of freedom 5% it can be concluded that KKA has positive influence and significance towards PFFR and BUMN in Indonesia. Automatically, audit committee quality contributes influence of 21,8% toward the prevention of fraudulent financial reporting. Unintentionally, because the correlation with audit committee quality is 12,0% so the total influence of audit committee quality toward the fraudulent financial reporting in BUMN in Indonesia is 33,8%.
3.2. The second hypothesis test: the influence of internal auditor objectivity toward the prevention of fraudulent financial reporting
Through coefficient value it can be mesured that the influence of respective independent variables is internal auditor objectivity (OAI) toward the prevention of fraudulent financial reporting (PFFR).
Table 2 : The Influence of Internal Auditor Objectivity (OAI) Toward The Prevention of Fraudulent Financial Reporting (PFFR)
Variable Coefficient Direct Influence
Indirect Influence
Total
KKA OAI
OAI 0,325 10,6% 12,0% 22,6%
Total 22,6%
Based on the above measurement it can be seen that t value of variable OAI (2,738) is higher than t critical (1,96), based on the degree of freedom 5% it can be concluded that OAI has positive and significant influence toward PFFR in BUMN Indonesia. Directly, OAI gives contribution 10,6% toward PFFR, indirectly because of its correlation with KKA is 12,0% so the total influence towad PFFR in BUMN Indonesia is 22,6%.
4. CONCLUSION ANDSUGGESTION 4.1. Conclusion
1. There is influence of audit committe quality toward the prevention of fraudulent financial reporting.
The function of audit committe in preventing the fraudulent financial reporting is not optimal and is caused by the weak control function and internal controll by audit committee it is because of the lack of knowledge and experience audit committee in financial accuntancy; lack training and coaching in accuntancy, finance, a dn auditing which is held by profesional organization; and the decreasing of etiquite value.
2. There is internal auditor objectivity influence toward the prevention of fraudulent inancial reporting.
The internal controll and the controlling function are not yet optimal because of not all the internal auditors have sufficient ability in detecting the existence of symptomp and red flags; to identify the possibility of fraud which is done by management; the finding which is still influenced by independency; lack of commitment by top management and doing the controll function and internal controlling to prevent the fraudulent financial reporting.
4.2. Suggestion
1. Audit committee quality optimalization must be improved through the standard recruitment process, like having experience as auditor in public accountant office ad obbeying th fixed standardization, the recruitment is handed to professionals in order to be free from any intervention from companies.
Besides, audit committee activity as member in profesional organization must be improved in order to enhance knowledge and experience in recent accountancy and finance, so it can ease the implementation of controlling function and internal control.
2. Internal auditor objectivity must be improved through quality improvement of internal auditor responsibility by placing experienced internal auditor in terms of business process and the certified auditor is more preferable (QIA/CIA), in order to be easier in doing analysis for prevention of fraudulent financial reporting.
III-30 AICPA, New York.
[3] ____________. 2005. Fraud and the Responsibilities of the Audit Committee: An Overview. From the AICPA Audit Committee Toolkit. New York.
[4] Anwar Nasution. 2009. Mantan Ketua BPK RI Dalam sambutannya pada penyerahan Ikhtisar Hasil Pemeriksaan Semester 1 tahun anggaran 2009 kepada DPR, Jakarta - Indonesia.
[5] Association of Certified Fraud Examiners (ACFE). 2002. Fraud Examination Manual, Third Edition.
[6] ________________ 2010. Report to the Nations on Occupational Fraud and Abuse.
[7] Bahr, Nicholas. et al. 2010. The Report on Fraudulent Financial Reporting: An Internal audit Perspective.
Internal Auditing. Vol 8 No. 7 page 4.
[8] Beasley, M. S. 1996. “An Empirical Analysis Between the Board of Director Composition and Financial Statement Fraud”.The Accounting Review 71: 443-465.
[9] Beasley, M. S., Carcello, J. V., and Hermanson, D. R., Lapides. P. D. 2000. Fraudulent Financial Reporting:
Consideration of industry traits and Corporate Governance Mechanism, Accounting Horison, vol. 14, No. 4, p.
441-54
[10] Belkaoui, Ahmed Riahi. 2004. Accounting Theory. Fifth Edition. Thomson Learning. London.
[11] Chtourou, Sonda Marrakchi, Bedard, J., Courteau, Lucie. 2004. Corporate Governance and Earning Management.
[12] Cohen, Jeffrey D., Krishnamoorthy, Ganesh., Wright, Armie. 2004. The Corporate Governance Mosaic And Financial Reporting Quality.
[13] Cooper, Donald R. and Pamela S. Schindler. 2006. Business Research Methods. Eighth Edition. Boston.
McGraw-Hill Inc.
[14] Coram, Paul., Ferguson, Collin., Moroney, Robyn. 2006. The Importance of Internal Audit in Fraud Detection.
[15] Financial Accounting Standards Board (FASB). 2008. Financial Accounting Series. Exposure Draft. Norwalk, Connecticut.
[16] Forum for Corporate Governance in Indonesia (FCGI). 2006. Peranan Dewan Komisaris dan Komite Audit dalam Pelaksanaan Corporate Governance (Tata Kelola Perusahaan). FCGI Booklet II. Jakarta.
[17] Hadi Purnomo. 2011. Ketua BPK RI Lembaga Tinggi Republik Indonesia. Laporan Utama: “LKPP 2010 Wajar Dengan Pengecualian”. Warta BPK, Edisi 05-Vol. I. Mei 2011, halaman12-13.
[18] Halim Alamsyah. 2011. Deputi Gubernur Bank Indonesia. Banking Efficiency Award. Jakarta 22 Juni 2011.
Detik Finance Rabu, 22 Juni 2011.
[19] Hermanson, Dana R., Daniel M. Ivancevich and Susan H. Ivancevich. 2008. Building an Effective Internal Audit Function: Learning from SOX Section 404. Review of Business. Winter Vol. 2; page 28.
[20] HiroTugiman, 1995. Komite Audit. Cetakanpertama. PT. Eresco. Yogyakarta.
[21] _____________. 1997. Standar Professional Audit Internal. Kanisius. Yogyakarta.
[22] Ikatan Akuntan Indonesia. 2009. Standar Akuntansi Indonesia, Penerbit Salemba Empat, Jakarta.
[23] Imam Ghozali. 2008. Structural Equation Modeling: Metode Alternatif denganPartial Least Squares (PLS).
Badan Penerbit UNDIP. Semarang.
[24] Institute of Internal Auditors (IIA). 2003. International Standars for the Profesional Practice of Internal Auditing. Altamonte Springs, FL. http://www.theiia.org/ecm/guide-frame.cfm?doc_id=1499
[25] Jos Luhukay, 2011. Mantan Direktur Utama Bank Danamon. Kompas.com. Selasa 03 Mei 2011
[26] Komite Nasional Kebijakan Governance (KNKG). 2006. Pedoman Umum Good Corporate Governance Indonesia
[27] M. Choliq. 2011. Direktur Utama PT. Waskita Karya Tbk. Detik Finance Kamis 16 Juni 2011.
[28]O’Keefe, D. J. (2003). The Potential Conflict between Normatively-good Argumentative Practice and Persuasive Success: Evidence from Persuasion Effects Research. Anyone who has a view: Theoretical contributions to the study of argumentation (pp. 309-318). Amsterdam: Kluwer.
[29] Rezaee, Zabihollah and Richard Riley 2010. Financial Statement Fraud: Prevention and Detection. John Wiley and Sons. New Jersey - Canada.
[30] Sekaran, Uma., Bougie R. 2010. Bussiness Research Method: A Skill Building Approach. John Willey & Sons Inc, Fourth Edition.
[31] Sugiyono. 2009. Metode Penelitian Bisnis. Bandung: Alfabeta.
[32]Tuannakotta, 2012 ….
[33] The Committee of Sponsoring Organization (COSO). 2007. Internal Control-Integrated Framework, Committee of Sponsoring Organizations of the Tread Way Commission. Pp 13-21.
[34] The Institute of Internal Auditors Research Fondation. 2009. International Profesional Practice Framework. The Institute of Internal Auditors Reseach Fondation 247 Maitland Avenue, Altamore Spring, FL 32701 – 4201, USA.
[35] Verdi, Rodrigo S. 2006. Financial Reporting Quality and Investment Efficiency, Steinberg Hall-Dietrich Hall Philadelphia, PA 19104. February 14, 2006
[1] Surat Edaran Bapepam No. SE-03/PM/2000 Tahun 2000 tentang Komite Audit.
[2] Surat Keputusan Ketua Bapepam Nomor Kep-41/PM/2003 tanggal 22 Desember 2003, Peraturan Nomor IX.1.5 tentang Pembentukan dan Pedoman Pelaksanaan Kerja Komite Audit
[3] Surat Keputusan Menteri BUMN. 2002. Penerapan Praktik Good Corporate Governance pada Badan Usaha Milik Negara, Kep. No. 117/M-MBU/02. tanggal 1 Agustus 2002.
